HCM specialist has a platform for growth

China's CDP, which provides cloud-based software for human resources management, has refiled its prospectus for an initial public offering in Hong Kong after its first application made in February lapsed in August.

Established in 2004, the Shanghai-based CDP proved enterprises with services covering five major sectors: talent acquisition, employee management, payroll, benefits, and talent development through its WorkLife application.

It has a 0.8 percent of the market share of human capital management software as a service or HCM SaaS, and a 0.2 percent HCM market share, according to a third-party report from China Insights Consultancy.

CDP says it pioneered the new-generation HCM SaaS+ business model in China, fully integrating cloud-based value-added services.

CDP's main shareholders include employer review site Glassdoor's owner, the Japan-based human resources management company Recruit, which owns 17.5 percent of its shares, mainland HR provider 51Jobs with a 17.5 percent stake and Morgan Stanley with a 8.75 percent stake.

Its customers include Trip.com (9961), one of the largest travel agencies in mainland, and carrier-neutral internet and data centre service provider China 21Vianet, which houses data for China internet giant Alibaba (9988).

The company had around 900 customers spanning across 45 industry verticals such as healthcare, technology and retail as of May this year. Retention rates for key accounts were 94.4 percent in 2019, 94.9 percent in 2020, 93.9 percent in 2021, and 89.7 percent for the first five months of the year.

CDP's revenue rose by 24.4 percent from 818.0 million yuan (HK$885.21 billion) in 2019 to 1.01 billion yuan in 2020, and further increased by 28.2 percent to 1.3 billion yuan in 2021.

However, it recorded net losses of 415 million yuan, 255 million yuan and 433 million yuan for the three years respectively.

Its losses for the first five months of 2022 rose about 13.7 percent to 220 million yuan net loss due to improper operations, according to the prospectus, while total revenue decreased 9 percent over the same period to 447.9 million yuan due to the plunge in workforce management revenue.

According to the prospectus, its total revenue consists of integrated SaaS+ and workforce management revenue, with the latter accounting for almost 80 percent of all revenue.

CDP sought to list in the US in 2019 but suspended the plan to raise US$125 million (HK$975 million) amid unfavorable capital market conditions. Now, the company plans to raise capital for broadening its customer base and further growing its market share of the HCM industry in China.

CDP does warn that the HCM market and more particularly the HCM SaaS+ market in which it participates is highly competitive, and if it does not compete effectively, or if the market develops slower than expected or declines, its business could be adversely affected.

China's HCM SaaS industry has expanded in the past five years amid a booming digital economy. Overall revenue grew from 63.7 billion yuan in 2017 to 158 billion yuan last year and is expected to reach 580.5 billion yuan in 2026, according to the CIC report.

CDP is following in the footsteps of its bigger rival Beisen, which reapplied to list in the city IPO in July after its first application in early 2022 lapsed.

Beisen, founded in 2002, provides human resources management and has an 11.6 percent market share among approximately 300 market players in China's cloud-based HCM industry.

If both their applications succeed, they will be the first companies of their kind to be listed in Hong Kong.